European Stocks Drop as German Investor Confidence Falls

A financial trader reacts as he works at his computer screens at the Frankfurt Stock Exchange in Frankfurt. Photographer: Ralph Orlowski/Bloomberg

July 16 (Bloomberg) -- European stocks fell from their
highest level in almost six weeks as German investor confidence
unexpectedly dropped this month.

Telecom Italia SpA plunged to its lowest price since July
1997 after Italy’s biggest phone company paused a plan to spin
off its fixed-line business. Invensys Plc fell the most in three
weeks as optimism for a bid from General Electric Co. waned. Rio
Tinto Group led commodity producers higher after posting a 7
percent increase in second-quarter iron-ore production and
raising its forecast for full-year copper output.

The Stoxx Europe 600 Index dropped 0.7 percent to 295.31.
The gauge rallied 5.6 percent in the past three weeks on
optimism central banks around the world will continue to support
economic recovery.

“I think it’s increasing political risks in the euro zone
in the coming weeks that is on investors’ radar,” Witold
Bahrke, who helps oversee $55 billion as a senior strategist at
PFA Pension A/S in Copenhagen, wrote in a message. “Stocks
started falling well in advance of the ZEW, but of course, the
ZEW disappointment doesn’t help either.”

German investor confidence unexpectedly dropped in July,
data showed today. The ZEW Center for European Economic Research
in Mannheim said its index of investor and analyst expectations
fell to 36.3 this month from 38.5 in June. Economists in a
Bloomberg survey had forecast a gain to 40.

U.S. Industry

U.S. industrial production rose in June by the most in four
months, another release showed. Output at factories, mines and
utilities climbed 0.3 percent, the biggest advance since
February, after being little changed in May, a Federal Reserve
report showed in Washington. The gain matched the median
forecast of 86 economists surveyed by Bloomberg.

Telecom Italia retreated 3.4 percent to 48.64 euro cents
after saying a regulatory decision to cut access fees to the
carrier’s network affected the feasibility of a network
separation. This is the second setback for Chief Executive
Officer Franco Bernabe’s plans to revive the company as a
proposed merger with Hutchison Whampoa Ltd.’s 3 Italia unit
ended amid price disagreement and antitrust concern.

Invensys Plc fell 1.5 percent to 502 pence, its biggest
decline since June 24. Makor Capital Ltd. said it doesn’t expect
a competing bid for the company, following Schneider Electric
SA’s 3.3 billion-pound ($5 billion) offer on July 11. Makor
commented after the Sunday Times reported that General Electric
Co. may bid for Invensys.

Swedbank Earnings

SES SA, the world’s largest publicly traded satellite
operator, dropped 4.4 percent to 21.60 euros. Morgan Stanley
downgraded the stock to underweight, a recommendation similar to
sell, from overweight. The brokerage said the proliferation of
satellite launches globally increases risk.

Rio Tinto rose 2.7 percent to 2,883 pence, leading a gauge
of mining companies to the best performance as a group on the
Stoxx 600. The world’s second-largest mining company said
second-quarter iron-ore production increased to 51.8 million
metric tons in the three months to June 30. That beat the 51.2
million-ton median estimate of seven analysts surveyed by
Bloomberg. The company also raised its forecast for full-year
copper production.

Aurubis AG, the second-biggest producer of refined copper,
advanced 4.8 percent to 42.12 euros. Societe Generale SA started
coverage of the stock with a buy rating and a 12-month price
estimate of 48 euros.

Lufthansa Rating

Deutsche Lufthansa AG gained 0.8 percent to 15.54 euros,
rising for a fourth day. Goldman Sachs Group Inc. raised its
recommendation for the shares of Europe’s second-largest airline
to neutral from sell.

Banca Monte dei Paschi di Siena SpA rose 1.4 percent to
21.7 euro cents. Fondazione Monte dei Paschi di Siena, which has
controlled the Italian bank for 18 years, agreed to remove a cap
that limits other owners’ voting rights. The foundation will
back the abolition of the 4 percent cap at a shareholders
meeting on July 18. The world’s oldest bank is seeking to
attract new investors in a 1 billion-euro ($1.3 billion) stock
sale to help repay state aid.

Michelin & Cie. added 2.6 percent to 74.36 euros, its
highest price since December 2007. Europe’s largest tiremaker
said the region’s tire demand at the manufacturers’ level
increased 2 percent in June, while it increased 3 percent in the
replacement market.